The European Commission has criticised the Government’s help-to-buy scheme and the rent control measures introduced to curb increases in certain areas.
It says the measures could be counter-productive, according to a report by RTÉ.
The Commission’s latest draft post-bailout review, seen by RTÉ News, says Ireland’s economic prospects remain bright but there are some clouds on the horizon – pointing to the uncertainty around Brexit and the future activities of multinationals.
It is the second report from the Commission in recent weeks and will be formally published in September. It was carried out late last year.
It welcomes the fact there is a specific minister with responsibility for housing but it warned Budget 2017 saw the introduction of measures that further stimulate demand or were inconsistent with efforts to increase supply.
It continued that the help-to-buy tax rebate for first time buyers of newly-built properties may be relatively limited but says it could increase demand despite supply challenges and thereby supporting further price increases.
On the introduction of a 4% cap on rent increases in designated areas, the Commission says rent controls have had a destabilising impact on housing market in other EU countries.
It also believes further examination of planning and infrastructure policies may be needed to ensure the availability of adequate infrastructure.
These include height limits and underground parking requirements.
It says it is unfortunate that the vacant site levy will not come into effect until 2018 as it would provide a disincentive to speculative land holding.
The draft report states the undersupply of housing is having severe social consequences but the overall resolution will depend on supply.
On the banking sector, it is also critical of the Fianna Fáil bill enabling the Central Bank to cap interest rates on variable rate mortgages.
If enacted it says could have implications for the financial stability of the banks and act as a deterrent effect on potential new entrants to the market.
It also states that the resolution of non-performing loans needs to regain momentum and efforts to ensure that impaired accounts are sustainably restructured should continue.
The focus it says should remain on mortgage loans that have been non-performing for a long time.
It says the suspension of water charges could affect investment in water infrastructure.
It adds that the Budget for 2017 aims to exhaust the available fiscal space and little has been done to broaden the tax base and shelter public finances from future shocks.
It says further spending increases and tax cuts could narrow the scope for public investment in infrastructure making it difficult to address bottlenecks and boost the long term productive capacity of the economy.